RURAL

List Comparable criteria:

List Criteria for every other alternate action:

Current and Projected Income Statement

($ in millions, except per user data)
Fiscal Year Ended December
2009
2010
2011
Projected
Projected Projected

2008
Projected
Revenues from net production
Sales
Royalty at 18.5%
Total revenue
% Growth

$
$
$

6,465.4 $
1,196.1 $
5,269.32 $

9,334.4 $ 9,327.6 $ 9,361.8

1,726.9 $ 1,725.6 $ 1,731.9
7,607.55 $ 7,601.97 $ 7,629.86
44.4%
-0.1%
0.4%

Production expense excl. taxes

Gross Profit
Gross Margin

(547)
4,722.02 $
89.6%

(790)
(790)
(792)
6,817.4 $ 6,812.4 $ 6,837.4
89.6%
89.6%
89.6%

(30.1) $

Taxes other than on income

Proved producing properties
Depreciation & depletion
Accretion expense
Exploration expenses
Unproved properties valuation
Other income (expense)
Earnings before Taxes
Profit Allowance (@16%)
Results before income taxes
Income tax expense
Additional earnings

$
$
$
$
$
$
$
$
$
$

(396.4)
(20.2)
(163.8)
(7.4)
(274.3)
3,829.89
612.8
3,217.11
(2,734.5)
482.6

$
$
$
$
$
$
$
$
$

(43.4) $
(572.2)
(29.2)
(189.6)
(10.6)
(396.0)
5,576.30
892.2
4,684.09
(3,981.5)
703

(43.4) $

$ (571.8)
$
(29.2)
$ (227.5)
$
(10.6)
$ (395.7)
$ 5,534.15
$
885.5
$ 4,648.69
$ (3,951.4)
697

(43.5)

$ (573.9)
$
(29.3)
$ (273.0)
$
(10.7)
$ (397.1)
$ 5,509.79
$
881.6
$ 4,628.22
$ (3,934.0)
694

Note:
For Valuation purposes assume $7B of Capital Expenditures will be amortized uniformly over 17 years; also assume

The line items were obtained from Chevron's annual report

(refer to Table III):
http://www.chevron.com/AnnualReport/2007/Financials/Supple
mentalInformationOnOilAndGas/
Assumption: All line items (incuding depreciation) are
calculated as a percentage of revenue. One reason being that
based on production schedule the life of the items and other
expenses/income change.

mber
2012
Projected

2013
Projected

2014
Projected

2015
Projected

2016
Projected

2017
Projected

2018
Projected

2019
Projected

$ 9,435.3 $ 8,795.8 $ 8,154.7 $ 7,506.4 $ 6,842.6 $ 6,194.3 $ 5,517.1 $ 4,813.9

$ 1,745.5 $ 1,627.2 $ 1,508.6 $ 1,388.7 $ 1,265.9 $ 1,146.0 $ 1,020.7 $
890.6
$ 7,689.73 $ 7,168.58 $ 6,646.08 $ 6,117.69 $ 5,576.71 $ 5,048.38 $ 4,496.44 $ 3,923.30
0.8%
-6.8%
-7.3%
-8.0%
-8.8%
-9.5%
-10.9%
-12.7%
(799)
(745)
(690)
(635)
(579)
(524)
(467)
(407)
$ 6,891.0 $ 6,424.0 $ 5,955.8 $ 5,482.3 $ 4,997.5 $ 4,524.0 $ 4,029.4 $ 3,515.8
89.6%
89.6%
89.6%
89.6%
89.6%
89.6%
89.6%
89.6%
$

(43.9) $

$ (578.4)
$
(29.5)
$ (327.6)
$
(10.7)
$ (400.2)
$ 5,500.56
$
880.1
$ 4,620.47
$ (3,927.4)
693

(40.9) $

$ (539.2)
$
(27.5)
$ (156.1)
$
(10.0)
$ (373.1)
$ 5,277.09
$
844.3
$ 4,432.76
$ (3,767.8)
665

(37.9) $

$ (499.9)
$
(25.5)
$ (206.6)
$
(9.3)
$ (345.9)
$ 4,830.56
$
772.9
$ 4,057.67
$ (3,449.0)
609

(34.9) $

$ (460.2)
$
(23.5)
$ (190.2)
$
(8.5)
$ (318.4)
$ 4,446.51
$
711.4
$ 3,735.07
$ (3,174.8)
560

(31.8) $

$ (419.5)
$
(21.4)
$ (173.4)
$
(7.8)
$ (290.3)
$ 4,053.31
$
648.5
$ 3,404.78
$ (2,894.1)
511

ver 17 years; also assume changes in working capital will be zero.

(28.8) $

$ (379.7)
$
(19.4)
$ (157.0)
$
(7.1)
$ (262.8)
$ 3,669.30
$
587.1
$ 3,082.22
$ (2,619.9)
462

(25.7) $

$ (338.2)
$
(17.3)
$ (139.8)
$
(6.3)
$ (234.0)
$ 3,268.14
$
522.9
$ 2,745.24
$ (2,333.5)
412

(22.4)

$ (295.1)
$
(15.1)
$ (122.0)
$
(5.5)
$ (204.2)
$ 2,851.56
$
456.3
$ 2,395.31
$ (2,036.0)
359

2020
2021
2022
2023
2024
Projected Projected Projected Projected Projected
$ 4,082.7 $ 3,324.0 $ 2,535.7 $ 1,718.1 $
$
755.3 $
614.9 $
469.1 $
317.8 $
$ 3,327.40 $ 2,709.03 $ 2,066.61 $ 1,400.24 $
-15.2%
-18.6%
-23.7%
-32.2%

873.4
161.6
711.78
-49.2%

(346)
(281)
(215)
(145)
$ 2,981.8 $ 2,427.7 $ 1,852.0 $ 1,254.8 $
89.6%
89.6%
89.6%
89.6%

(74)
637.9
89.6%

(19.0) $

$ (250.3)
$
(12.8)
$ (103.4)
$
(4.6)
$ (173.2)
$ 2,418.45
$
387.0
$ 2,031.50
$ (1,726.8)
305

(15.5) $

$ (203.8)
$
(10.4)
$
(84.2)
$
(3.8)
$ (141.0)
$ 1,969.00
$
315.0
$ 1,653.96
$ (1,405.9)
248

(11.8) $

$ (155.5)
$
(7.9)
$
(64.3)
$
(2.9)
$ (107.6)
$ 1,502.07
$
240.3
$ 1,261.74
$ (1,072.5)
189

(8.0) $

$ (105.3)
$
(5.4)
$
(43.5)
$
(2.0)
$
(72.9)
$ 1,017.73
$
162.8
$ 854.90
$ (726.7)
128

(4.1)

$
(53.5)
$
(2.7)
$
(22.1)
$
(1.0)
$
(37.0)
$ 517.34
$
82.8
$ 434.57
$ (369.4)
65

2007 Chevron Africa's income statement

8588

-892 -0.1038659

-49 -0.0057056
-646
-33
-267
-12
-447

-0.0752212
-0.0038426
-0.0310899
-0.0013973
-0.0520494

6242
-4907 -0.7861262
1335

DCF Analysis
($ in millions, except per share)
0.5

1.5

2.5

Sales/Revenue (after Royalty)

2008
2009
2010
Projected
Projected
Projected
$
5,269.3 $ 7,607.6 $
7,602.0

All Expenses (combined)

EBITDA (after Royalty and all other expenses)
Less: Depreciation
EBIT
Less: Taxes
Net Operating Profit After Taxes

$
$
$
$
$
$

Plus: Depreciation
Less: Capex

$
$

396.4 $
411.8 $

572.2 $
411.8 $

571.8
411.8

Unlevered Free Cash Flow

1,079.9 $

1,755.3 $

1,742.8

Midyear annual discount for timing of

estimated cash flows
Standardized Measure: Net cash flows

$
$

999.75 $ 1,392.57 $
8,072.72

1,184.94

Petrobras share @ 13%

1,049 Million

*using EHV

Petrobras share @ 13%

1,207 Million

*using sovereign spread

Cost of capital
Discount rate:
Royalty
Taxes
Profit Allowance

(495.8)
4,226.3
(396.4)
3,829.9
(2,734.5)
1,095.3

$
(668.8) $
$ 6,148.5 $
$
(572.2) $
$ 5,576.3 $
$ (3,981.5) $
$ 1,594.8 $

(706.4)
6,106.0
(571.8)
5,534.2
(3,951.4)
1,582.8

16.69%
18.50%
85%
16%

Sensitivity Analysis on Value of Petr

$

1,049

Profit
Allowance

12%
13%
14%
15%
16%
17%
18%
19%
20%

12.90%

Fisc
3.5

4.5

5.5

6.5

7.5

8.5

2011
2012
2013
2014
2015
2016
Projected
Projected
Projected
Projected
Projected
Projected
7,629.9 $ 7,689.7 $ 7,168.6 $ 6,646.1 $ 6,117.7 $ 5,576.7

$
$
$
$
$
$

(753.7)
6,083.7
(573.9)
5,509.8
(3,934.0)
1,575.8

$
(812.0) $
(607.7) $
(625.3) $ (575.6)
$ 6,079.0 $ 5,816.3 $ 5,330.5 $ 4,906.7
$
(578.4) $
(539.2) $
(499.9) $ (460.2)
$ 5,500.6 $ 5,277.1 $ 4,830.6 $ 4,446.5
$ (3,927.4) $ (3,767.8) $ (3,449.0) $ (3,174.8)
$ 1,573.2 $ 1,509.2 $ 1,381.5 $ 1,271.7

$
$

573.9 $
411.8 $

578.4 $
411.8 $

539.2 $
411.8 $

1,738.0 $

1,739.8 $

1,636.7 $

1,012.64 $

868.75 $

700.39 $

ng sovereign spread

499.9 $
411.8 $

460.2 $
411.8 $

419.5
411.8

1,469.7 $ 1,320.1 $

1,167.0

538.98 $

Breakeven Premium
(To stay in Agbami)

18.50%
16%
85%

21.00%
15.00%
87.500%

23.50%
14.00%
90.000%

$
(524.7)
$ 4,472.8
$
(419.5)
$ 4,053.3
$ (2,894.1)
$ 1,159.2

26.00%
13.00%
92.500%

sitivity Analysis on Value of Petrobras' share: Royalty vs Profit Allowance

Royalty
13.50%
16.00%
18.50%
21.00%

414.89 $

314.31

(49.45)

28.50%
12.00%
95.000%

23.50%

26.00%

1,049

Fiscal Year Ended December

10.5
11.5
2017
2018
2019
Projected
Projected
Projected
$ 5,048.4 $ 4,496.4 $
3,923.3 $
9.5

$
(475.0) $
(423.0) $
$ 4,049.0 $ 3,606.4 $
$
(379.7) $
(338.2) $
$ 3,669.3 $ 3,268.1 $
$ (2,619.9) $ (2,333.5) $
$ 1,049.4 $
934.7 $

(369.1)
3,146.7
(295.1)
2,851.6
(2,036.0)
815.5

$
$
$
$
$
$

12.5

13.5

2020
2021
Projected
Projected
3,327.4 $
2,709.0
(313.1)
2,668.7
(250.3)
2,418.5
(1,726.8)
691.7

$
$
$
$
$
$

(254.9)
2,172.8
(203.8)
1,969.0
(1,405.9)
563.1

$
$

379.7 $
411.8 $

338.2 $
411.8 $

295.1 $
411.8 $

250.3 $
411.8 $

203.8
411.8

1,017.4 $

861.2 $

698.9 $

530.2 $

355.1

234.84 $

170.34 $

118.48 $

77.03 $

44.22

Sensitivity Analysis on Value of Petrobras' share: Discount Rate vs Prices of Oil

Price of Oil Option 1 (Texas State) Price of Oil Option 2 (Futures Market)
Discount Rate
Petrobra's Value Discount Rate
28.50%

12.69%
13.69%
14.69%
15.69%
16.69%
17.69%
18.69%
19.69%
20.69%

725.8
698.6
673.0
648.9
626.3
605.0
584.9
565.9
548.0

12.69%
13.69%
14.69%
15.69%
16.69%
17.69%
18.69%
19.69%
20.69%

14.5

$
$
$
$
$
$
$

2022
Projected
2,066.6
(194.4)
1,657.5
(155.5)
1,502.1
(1,072.5)
429.6

15.5

16.5

2023
Projected
$
1,400.2 $
$
$
$
$
$
$

(131.7)
1,123.1
(105.3)
1,017.7
(726.7)
291.1

2024
Projected
711.8

$
$
$
$
$
$

(67.0)
570.9
(53.5)
517.3
(369.4)
148.0

$
$

155.5 $
411.8 $

105.3 $
411.8 $

53.5
411.8

173.3 $

(15.4) $

(210.3)

18.49 $

(1.40) $

(16.48)

share: Discount Rate vs Prices of Oil

e of Oil Option 2 (Futures Market)
Price of Oil Option 3 (Average)
Price of Oil Option 4 (Breakeven)
Petrobra's Value Discount Rate
Petrobra's Value Discount Rate

$
$
$
$
$
$
$
$
$

1,708.2
1,643.2
1,582.4
1,525.5
1,472.1
1,421.9
1,374.8
1,330.4
1,288.5

12.69%
13.69%
14.69%
15.69%
16.69%
17.69%
18.69%
19.69%
20.69%

$
$
$
$
$
$
$
$
$

1,217.0
1,170.9
1,127.7
1,087.2
1,049.2
1,013.5
979.8
948.1
918.2

12.69%
13.69%
14.69%
15.69%
16.69%
17.69%
18.69%
19.69%
20.69%

ice of Oil Option 4 (Breakeven)

Petrobra's Value

$
$
$
$
$
$
$
$
$

(10.9)
(7.4)
(4.5)
(2.0)
2.0
3.5
4.7
5.8

Sample calculations on Taxes and Royalty

Gross Revenue
Royalty (@18.5%)
Depreciation (say 10%)
Capex (say 10%)
EBIT
Profit Allowance (@ 16%)
EBT
Taxes (@85%)
Net Profit
Note: Net Profit earned by the firm is in addition to the Profit Allowance

$100
$18.50
$10
$10
$61.50
$9.84
$51.66
$43.91
$7.75

Year Option 1 (Texas State Government)

67.83
1
68.34
2
69.21
3
70.19
4
71.56
5
73.15
6
74.83
7
76.73
8
78.63
9
80.55
10
82.40
11
84.30
12
86.19
13
88.11
14
89.94
15
91.61
16
93.39
17

Option 2 (Futures Price)

134.61
136.25
135.23
135.00
135.24
135.70
136.40
137.15
138.00
140.07
142.17
144.30
146.47
148.67
150.90
153.16
155.46

Option 3 (Average Price)

101.22
102.30
102.22
102.60
103.40
104.43
105.62
106.94
108.32
110.31
112.29
114.30
116.33
118.39
120.42
122.38
124.42

Option 4 Breakeven Oil Price

24.03
24.51
25.00
25.50
26.01
26.53
27.06
27.60
28.15
28.71
29.29
29.87
30.47
31.08
31.70
32.34
32.98

Oil Production Schedule

100,000
1
2
113,636
3
127,273
4
140,909
5
154,545
6
168,182
7
181,818
8
195,455
9
209,091
10
222,727
11
236,364
12
250,000
Production:
175,000
Production Capacity Factor:

Year

Production Capacity
(barrels per day)
1
175,000
2
250,000
3
250,000
4
250,000
5
250,000
6
230,769
7
211,538
8
192,308
9
173,077
10
153,846
11
134,615
12
115,385
13
96,154
14
76,923
15
57,692
16
38,462
17
19,231

Production schedule assumptions:

Production begins with 100,000
bblspd; at the end of first year
production reaches 250,000 bblspd.
This level is maintained for the next 4
years. Then it slowly tapers off over
the life of the project to 0 bblspd.
Information based on interview with
Chevron.

100%

Enter Option (1,2,3 or 4 )>>>

Adjusted
Production
Production
Capacity (barrels Capacity (barrels
per day)
per year)
Capacity Utilization
175,000
63,875,000
100%
250,000
91,250,000
100%
250,000
91,250,000
100%
250,000
91,250,000
100%
250,000
91,250,000
100%
230,769
84,230,769
100%
211,538
77,211,538
100%
192,308
70,192,308
100%
173,077
63,173,077
100%
153,846
56,153,846
100%
134,615
49,134,615
100%
115,385
42,115,385
100%
96,154
35,096,154
100%
76,923
28,076,923
100%
57,692
21,057,692
100%
38,462
14,038,462
100%
19,231
7,019,231
100%

sumptions:
100,000
st year
,000 bblspd.
for the next 4
pers off over
0 bblspd.
terview with
1 Option
2 Option
3 Option
4 Option

Actual
Price of Crude per
Production
barrel
101.22
63,875,000 $
102.30
91,250,000 $
102.22
91,250,000 $
102.60
91,250,000 $
103.40
91,250,000 $
104.43
84,230,769 $
105.62
77,211,538 $
106.94
70,192,308 $
108.32
63,173,077 $
$
110.31
56,153,846
112.29
49,134,615 $
114.30
42,115,385 $
116.33
35,096,154 $
118.39
28,076,923 $
120.42
21,057,692 $
122.38
14,038,462 $
124.42
7,019,231 $

Revenue
(Millions of
Dollars)

$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$
$

6,465
9,334
9,328
9,362
9,435
8,796
8,155
7,506
6,843
6,194
5,517
4,814
4,083
3,324
2,536
1,718
873

1
2
3
4

(Texas State Government)

(Futures Price)
(Average Price)
Breakeven Oil Price

Cost of Capital Worksheet

Worksheet calculates cost of equity capital in nominal U.S. dollar terms.
Convert local currency cash flows to USD by the assumption of Purchasing Power Parity, i.e. the expected
annual depreciation in the FX rate is exactly equal to the difference between local and U.S. inflation rates.
Risk Premium Calculation
Inputs
Output Category
4.10
U.S. risk free in %
5.00
U.S. risk premium in %
93.80
Current U.S. Credit Rating
38.30
Institutional Investor country credit rating (0-100)
24.95 Anchored Cost of Equity Capital for project of average risk in country (ICCRC)
15.85 Country Risk Premium
Industry Adjustment
0.94

Beta (Industry)
-0.30 Sector adjustment

Project Risk Mitigation

(-10 to 10; where 10=risk completely eliminated, 0=average for country)

Weights
0.40
0.10
0.15
0.05
0.05
0.05
0.05

0.05
0.03

Impact on
Country
Premium

Score
9.50
7.00
-2.50
5.00
0.00
-4.00
0.00

6.00
8.00

Sovereign
-6.02 Currency (direct, e.g. convertibility)
-1.11 Currency (indirect, e.g. political risk caused by crisis)
0.59 Expropriation (direct, diversion, creeping)
-0.40 Commercial International partners
0.00 Involvement of Multilateral Agencies
0.32 Sensitivity of Project to wars, strikes, terrorism
0.00 Sensitivity of Project to natural disasters

Operating
-0.48 Resource risk
-0.32 Technology risk

0.05
0.03

7.00
0.00

Financial
-0.55 Probability of Default
0.00 Political Risk Insurance

1.00
Project Cost of Capital

Sum of weights (make sure = 1.00)

16.69

Cash Flow Check List:

Operating-Precompletion
Resources available (quantity/quality) -part not in discount rate
Technology (proven technology) -part not in discount rate
Timing risks (penalties for milestones)
Operating-Post-completion
Market risks (prices of outputs)
Supply/input risk (availability)
Throughput risk (material put through plus efficiency of systems operation)
Operating costs
Sovereign
Inflation assumptions/Exchange rates
Real Options
Input mix or process flexibility
Output mix or product flexibility
Abandonment or termination
Temporary stop or shutdown
Intensity or operating scale
Expansion
Contraction
Initiation or deferment
Interproject/intraproject
Growth
Shadow costs
Financial flexibility
Complex options which might diminish or augment value of other options

CRC)

Sovereign Spread Calculation

4.10
5.00
0.94
8.8
7.27
3.17
12.90

U.S. risk free in %

U.S. risk premium in %
Beta
Implied Re
Nigeria Bond Yield (8 yr. maturity)
Sovereign Spread
Adjusted Re